Managerial Finance
-
1
-
Managerial Finance Project Toys R in Brazil
Managerial Finance
-
2
-
Summary
My paper term paper is 8
-
page for my managerial finance class that analyzes the prospects of Toys R for international expansion into Brazil
. The analysis consists of financial analysis of the company and en vironment analysis of the country. It relies on eight external sources presented in
APA format.
Body of the paper
Introduction
Toys R Us Inc., is a leading toy and baby products retail company that operates in a number of countries all over the world. St arted as a baby furniture store in 1948, the company has grown over the years into an international giant that runs 870 stores selling toys and baby goods in the
…show more content…
In 2011 the company formed a joint venture with Li
& Fung to cater to Southeast Asia and Greater China.
Toys R went public in 1978 and operated as a public company until 2005 under this
Managerial Finance
-
3
-
name, when it was taken over by an investment group, which allotted 1 share in the new entity for each share in the earl ier company
(Toysrusinc.com, 2015)
.
Toys R market share peaked in 2011, when its sales touched $8,317 M giving it a market share of 19%. The market share of Toys R in the US has dipped in 2013 to its 2009 level of around 17.8%
(Nasdaq, n.d.)
Evaluation of the Company’s Financial Stability
The company has a good short
-
term liquidity position, but it is over leveraged. The equity has become negative and the company has been making losses in the last two years. Obviously, the company is not in a position to g enerate additional cash required for investing in foreign operations either through internal generation or by raising external funds. Consequently, it is suggested that the company should look at foreign expansion w ith minimum capital investment by transfe rring essential assets that can be spared from the parent company. The balance of the capital requirement should be met through local long term loans.
Key Financial Figures
Relevant financial figures of the company were obtained from the published financi al statements and are shown in Appendix
The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s
Also, according to its leverage ratios, the company’s debts are not only very high, but are also increasing. Its decreasing TIE ratio indicates that its capability to pay interests is decreasing. The company’s efficiency ratios indicate that despite the fact that its fixed assets are increasingly being utilized to generate sales during the years 1990-1991 as indicated by its increasing fixed asset turnover ratio, the decreasing total assets turnover indicate that overall the company’s total assets are not efficiently being put to use. Thus, as a whole its asset management is becoming less efficient. Last but not the least, based on its profitability ratios, the company’s ability to make profit is decreasing.
In order to get toys in its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children’s toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. However, new toys can also flop,
The purpose of this memo is to document and evaluate the business risks faced by Toy Central Corporation (TCC), as well as audit risks, accounting issues identified, and management assertions affected.
Toy World’s estimates have been accurate in the past with regards to how much they are going to sell and how much they are going to purchase to produce
nearly $260 billion in sales, managed over 5,000 stores in 10 countries, and employed over 1.5 million
Organizational Hierarchy Structure- Toys R Us was a decentralized organization, which had a leadership type setting from country to country. This type of structure was difficult because all the leaders from different countries were not communicating effectively. The company knew they had to make some changes to the system, if they wanted to be successful. Therefore, after careful consideration, the company decided to move to a more centralized structure. This change was needed to strengthen their business with regards to their compatibility amongst countries and creating a more efficient workplace in the United States and abroad. In the company’s business in Europe, instead of their being different leaders across the continent, there will
Through studying the entire retail toy industry, we have been able to understand the complexity of the industry in which Toys "R" Us operates. Upon completion of the analysis, we realized that the industry is growing stably,
The toys produced by the company (much more expensive than the local ones) would probably be profitable only in big cities and 80% of the population is still rural.
Retailing the right product at the right season, like outdoor games in the spring, is important to maximize sales. The continual display and presentation of new toys, games and crafts will attract customers and generate higher sales. Looking into expanding operations and product lines towards video games and other growth segments (e.g. Building sets and action figures). Building up a well-designed online marketing channel can promote efficiency and cost savings. Expanding the international market to avoid the intense competition in the U.S. Retail Toy Industry. Closing underperforming stores to improve liquidity through the expertise of Vornado Realty Trust and reinvest the money back into the operation.
So, they turned to making toys, and Mattel became the world’s largest toy company, with a revenue of $5.8 billion and a net income of $684 million in 2010.
There are always business risk when it comes to expanding a company, especially from an international standpoint. There are many strategic risk that needs to be evaluated in order to expand the company successfully. Examining the possible risk of foreign currency exposure, basic functions of international banking/financial market, support of long term financing of operations, and assessment of opportunities that can be implemented within the company. There are risk on three dimensions of international finance, economic trends of the country, impact of globalization and monetary system. All of these situations will be discussed in this paper.
4. What were the problems in transferring the Toys “R” Us competitive advantages to a foreign market? Why did Toys “R” Us internalize the firm-specific advantages rather than license another retailer abroad?
It’s noticeable how the company’s operations have been deteriorating as they are having a more difficult time translating sales into cash. Their A/R turnover is not where it needs to be, and in line with that, their liabilities are increasing as well. The company has also been inefficient with the use of their assets as their current activity ratios are not up to par with the industry standards.
* Another important aspect to be noted is that, although the company has a very low operating profit the